For about a decade, active managers specializing in non-U.S. large-cap equities and emerging markets have been able to beat market returns. Citing analysis by Investment Metrics, Institutional Investor is reporting that the average gross excess return for active managers investing in global large-cap companies from 2012 to 2021 was 1.3%. For those investing in non-U.S. large-cap and emerging markets, the excess returns were 2.2% and 1.9%, respectively.
Of all sectors, actively managed domestic large-cap portfolios were the only ones that showed meager outperformance, beating the Russell 1000 Index by an average of 0.1%.
While passive U.S. large-cap portfolios were massively profitable in 2021, inflation, rate hikes, and Russia’s invasion of Ukraine have made investors wary of these stocks in 2022, which gives active managers a chance to prove their mettle.
“Historically, active managers have been able to make handsome gains in volatile conditions, such as we face now,” Investment Metrics research consultant Scott Treacy told Institutional Investor.
The current geopolitical environment may also give active managers focused on emerging markets a leg up because they can filter out the investable countries from EM index components. Guidestone Capital Management president David Spika noted that as the war in Ukraine continues to escalate, some commodity-producing EM countries in Africa and South America have provided some good investment opportunities.
Emerging markets also have more mispricing than do developed regions, which is another reason why active managers often outperform the EM benchmarks.
Market volatility may even help active managers with fee compression. Said Treacy: “I do think the fee compression will kind of bottom up and those active managers will be able to demonstrate their value.”
Investment firm T. Rowe Price offers a suite of actively managed global ETFs, including the T. Rowe Price Dividend Growth ETF (TDVG ), the T. Rowe Price Growth Stock ETF (TGRW ), the T. Rowe Price Blue Chip Growth ETF (TCHP ), and the T. Rowe Price Equity Income ETF (TEQI ). T. Rowe Price has been in the investing business for over 80 years through conducting field research firsthand with companies, utilizing risk management, and employing a bevy of experienced portfolio managers carrying an average of 22 years of experience.
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